$2bn for Apple patents 'too high'

Samsung Electronics Co says Apple Inc's patent-infringement claims of US$2.19 billion are 57 times higher than what the Galaxy maker should pay if a jury finds it infringed smartphone technology.

Published: 22/04/2014 at 06:08 PM

Writer: Bloomberg News

Samsung called on a Yale University business school professor on Monday to make its case to a federal jury in San Jose, California, that if it has to pay anything, the amount should be as little as 35 cents a phone -- a stark comparison to Apple's demand for more than $40 a phone.

The Suwon, South Korea-based company also began its offensive attack yesterday, accusing Apple of infringing two of its patents.

Professor Judith Chevalier's testimony builds on a Samsung lawyer's argument at the outset of trial that Apple’s multibillion-dollar figure is a "gross exaggeration" and an "insult" to the intelligence of jurors. According to Samsung, Cupertino, California-based Apple's damages are inflated because the five patented smartphone features at issue are of marginal value.

The second US trial between the world's top two smartphone makers follows legal battles on four continents to dominate a market that was valued at $338.2 billion last year, according to data compiled by Bloomberg.

Revenue share

Samsung had 31% of industry revenue, compared with 15% for Apple, whose share of the market has shrunk as the touch-screen interface has become commonplace and Samsung, LG Electronics Inc and Lenovo Group Ltd have introduced lower-cost alternatives.

"It is generally in the patentee's best interest to present as large a figure as possible without appearing unreasonable, just as it is in the accused infringer's best interest to present a figure as small as possible without appearing unreasonable," Brian Love, a law professor at Santa Clara University, said in an interview. "On average, jury verdicts tend to fall very near the mid-point between the parties’ respective damages estimates."

Chevalier, an economics and finance professor at the Yale School of Management, was called by Samsung to contest a report produced for Apple by Christopher Vellturo, an Massachusetts Institute of Technology-trained consultant based in Boston.

Vellturo said the $2.19 billion sought by the iPhone maker accounts for two types of damages: lost profits and reasonable royalties the company should have earned on more than 37 million infringing products that Samsung sold from August 2011 to December 2013.

‘Hypothetical’ negotiation

In patent law, to calculate damages, companies are asked to recreate a "hypothetical" license negotiation, according to Love. Vellturo's damages estimates assume Samsung would "capitulate" and "roll over" to Apple's royalty demands, Chevalier said. She argued that Apple's patents at issue in the case are of such marginal value that the company has not lost profits due to Samsung's infringement.

"My analysis compensates Apple through a reasonable royalty and zero lost profits," Chevalier told jurors. "When Samsung sells a phone, Apple may be losing out. But that is not the same as saying that Apple loses sales because Samsung infringes Apple’s patents."

Apple claims that 10 Samsung products, including the Galaxy S3, infringe five patents covering a range of user-interface designs for the iOS software that powers iPhones and iPads, including features like the slide-to-unlock function, automatic spelling corrections, and the ability for a user to make a call by clicking on a phone number within a web page or e-mail instead of having to dial it separately.

Others functions Apple says are covered by its patents include searching for words in files stored in different applications and updating applications while using other features of the phone.

Apple products

Samsung alleges that eight Apple products, including the iPhone 5 and versions of the iPad and iPod, infringe two of its patents.

One claim is that FaceTime, Apple's video-chatting service, infringes a patent covering technology for compressing video data so it can be sent over a cellular network.

The other patent at issue in the case, acquired by Samsung in 2011 from Japan's Hitachi Ltd, covers functions related to retrieving, classifying and organising digital images.

Samsung lost 0.4% to close at 1,375,000 in Seoul. The benchmark Kospi index gained 0.3%.

The case is Apple Inc v Samsung Electronics Co, 12-cv-00630, US District Court, Northern District of California (San Jose).